Tuesday, December 1, 2009

So long ago that I no longer remember where or when, I heard this statement: The measure of a leader is not the measure of the cause.

How many effective and charismatic leaders who lead evil causes does history tell us about? How many great causes were lead by flawed men?

Back when I was in the army, we played poker for recreation. We had a saying that the cards spoke for themselves. That is when you laid down your hand, it didn’t matter what you said you had, you actually had what the cards showed. And the qualities of the leader both good and bad are not the qualities of the cause, good or bad. The results of the cause, good or bad, speak for themselves and define that cause’s qualities.

We’ve all seen televangelists that preach a Christian life but don’t come close to living it themselves. Does their inability to meet their own standard make that standard less worthy? I think not. Just as someone’s idea is neither better nor worse because they present it poorly or well.

The same is true for business ideas. The idea is either good or bad on it’s own merits not on the quality of the presentation. If the life’s blood of your business is a product or service then improving either the product, the service, the efficiency of production or delivery is crucial to your survival.

If improving your product or service or even developing a new product or service is important to your business, you’ve got to spend the time to look beyond the presentation to find your next big thing or next great employee.

Sunday, October 25, 2009

A lot of well-trained, very smart people made decisions that seemed quite rational at the time. They followed their best training and the collective wisdom of their industry.

Since those decisions lead directly to the current economic crisis, we really need to understand what happened and why it happened so we can try to prevent this kind of global collapse from happening again.

Each of these people has somewhere between 250 and 500 hours of dedicated classroom training in economics, how it works, and how to manage businesses using that knowledge. If only one or two of this huge number of people, worldwide, had made the kind of serious misjudgments that lead to this crisis you might attribute it to their individual misunderstanding or misuse of that schooling or you might simply say they didn’t properly execute the steps that training recommended.

You might, if only a few of them had made those mistakes. That’s not what happened. Far too many of this select group acted in the same way at the same time for it to be simple human error.

Which seems more likely to you, that literally thousands of individuals, spread all over the world made similar mistakes at approximately the same time or that the knowledge gained in those 250 to 500 hours was simply wrong?

The fact the existing tracking systems, created by those same classically trained economists, didn’t catch a lot of people misusing or not properly executing the accepted economic wisdom makes it seem even more likely that the decision makers were doing exactly what that accepted economic wisdom expected them to do.

Without a detailed study of the current recession we can’t be sure, but it is unlikely in the extreme that so many people would all screw up in the same way at the same time. Much more likely that they were filtering the information through the same misguided theories.

I submit that a lot of people following a bad plan is much more likely than a lot of people screwing up in the same way at the same time. I further submit that the fundamental flaw in the underlying theories is that they mistake cause for effect!

There is an old saying that nothing happens until someone sells something, and from the limited perspective of the salesman that’s true. The broader view is really that nothing happens until someone buys something. Using that broader statement leads to other obvious conclusions.

For anyone to buy something they must have money; implying jobs that pay enough to buy that stuff. So any economic theory that does not hold as its keystone the availability of jobs and the income level of those jobs is fundamentally flawed. Yes, the current crop of economic measures and theories do include jobs and salaries, but only peripherally not as the central measure of economic health.

While this may seem simplistic or limited to someone trained in “classic” economic theory it seems obvious to the most casually observer that since one of the most highly trained economists, Alan Greenspan, didn’t see this coming that the training he spent a lifetime acquiring might have blinded him to factors that a lay person in his innocence recognizes as critical.

Benjamin Franklin is quoted as saying “Insanity is doing the same thing the same way and expecting different results”, we got where we are following our current economic theory and only examining and revising those theories stands a chance of charting a course out of our economic morass.

Sunday, September 20, 2009

Bill Gates left Harvard in his junior year, Paul Allen dropped out of the University of Washington. Steve Ballmer graduated from Harvard with a bachelor’s in math and economics.

These three started with an idea and turned it into a major corporation.

If someone with the credentials of any of these three (two college dropouts and and a math major with no practical experience) came to you with the idea for Microsoft would you have bankrolled them? More importantly will you recognize the next Gates, Allen, or Ballmer?

I promise you that the Steves (Wozniak and Jobs) started in their garage because they had to, not because working in a garage was the “best” place to start. They believed, rightly or wrongly, that they couldn’t get any investor to give them the money to do what they wanted to do. Not because what they wanted to do was all that risky, but because the investors they could find had a lack of vision and were much more interested in the creator’s presentation skills than the fundamental idea.

What process do you have for the janitor to tell you about some hip, slick and cool new thing he found? Do you restrict your pool of new ideas to a select few managers at your staff meetings? And most importantly of all, will you remember that it’s your staff’s job to find the ideas, it's your job to pick the winner and figure out how to make money from it?

One of the problems with the economy today is the understandable urge to reduce risk. While managing and reducing risk seems like something any business should be doing, when you forget that without risk there is no growth, your business and the whole economy stop growing! One of the reasons Silicon Valley has had so many startups is the collection of people willing to take risks in that one small area.

The biggest blockage to a new idea is that a great idea is useless without someone else with money and a willingness to risk that money supporting the new idea.

Wednesday, September 16, 2009

I correspond (email) with my elder son quite a lot about various business issues. I like testing my experience-based ideas against his MBA trained thinking.

Our last discussion was about the missing data in the reports about unemployment. I believe that underemployment is the one of the biggest components in the current economic crunch. I also believe that the economy has to generate about 250,000 new jobs every month just to accommodate the people entering the workforce for the first time. You can see my blog post Digging Out for details.

When I complained that the reports don’t deal with either element very well and that the popular press doesn't tell the readers that this is critical but missing information, his reply was that collecting the underemployment data was difficult and would, probably, be lost in the noise of the bigger out-of-work number anyway.

I think this misapplication of the idea “if it can’t be measured it ain’t science” completely that ignores the fact that just because you don’t know how to measure it doesn’t mean that it isn’t critical. I also think that not including it has caused too many decision makers to miss key elements that are creating unintended consequences and pushing up unemployment numbers dramatically.

Just as you can see the differences between my poor writing and real art, your individual judgment will spot trends and underlying information that cannot be measured, reduced to numbers, and plugged into the currently popular economic equation. As long as you are analyzing the available information and not trimming to fit your pet theory, conspiracy or otherwise, your “gut check” much more likely to be right than the folks starting with a theory and complex math.

An if you think the complex math is more likely to be right, remember that John Nash, who shared the 1994 Nobel prize in economic science, developed the mathematical theory that underlies the complex equations that allows the development of derivatives trading. The same derivatives that drove the market collapse because those Nobel Prize winning equations didn’t really capture all the critical elements.

Alan Greenspan, former Chairman of the Federal Reserve Bank is a pretty smart guy and Wikipedia has this quote from him: In Congressional testimony on October 23, 2008, Greenspan acknowledged that he was "partially" wrong in opposing regulation [..of financial derivatives..] and stated, "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity — myself especially — are in a state of shocked disbelief." Referring to his free-market ideology, Greenspan said: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

The other quote that comes to mind is from Upton Sinclair: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

Monday, September 7, 2009

If you didn’t go to college, your first job was probably whatever you could get. That job led to other jobs that turned into a career. Mostly life handed you lemons, you made lemonade and your career progressed by Hobson’s choice.

If you went to college, you took what you thought you liked – at 17! As you studied you may have changed direction but you graduated at 21 or 22 and then began to find many new and surprising directions that you never new about, much less considered when you picked your major.

Now, in the middle of a recession with jobs hard to find, you are being told that you must find a job that fits your passion. You’ve been too busy making whatever your Hobson’s choice got you into work to find out what you love. That also means a career change in a job climate were employers are not looking for crossover skills, they are looking for a “perfect match”.

You will find that most of the people claiming that you should find work you are passionate about are in social professions – psychologists or psychiatrists – or sales. You will never hear an engineer, a chemist or truck driver tell you to follow your passion. You rarely see “must have a passion for driving a fork lift or accounting” in a job description. The only jobs I remember seeing talk about passion is sales. All the push for job passion is driven by our workplace change from maker to designers and sellers.

I am writing this on a Mac book and in the process of making this laptop computer someone sat at a workbench checking resisters. Measuring the resistance value of some percentage of the incoming parts to make sure that they are correct. How passionate would you be about measuring the resistance of these small parts?

You might get a lot of satisfaction from doing your job well and knowing that you are part of making a great laptop for some unknown guy to write on.

Friday, August 21, 2009

According to the website infoplease.com , there were just over four million births (in the US) in 1991. Why is that number interesting? Because those people will turn 18 this year, and 18 is the traditional age when Americans start working full time.

Some percentage will be stay-at-home moms (or dads), some will be unable to work because of health issues or physical disabilities. The actual number of people entering the work force each month is generally estimated at around a quarter of a million workers. This means that we have to create 250,000 jobs every month. We can create new jobs or fill existing jobs where workers retire or quit working for another reason; but 250,000 people need a first, full-time, permanent job every single month - forever. This number should help you understand the news reports on the economy. Any month we don’t create 250,000 new jobs, we are loosing ground. Doesn’t matter which expert predicts that this month’s numbers show a trend, until we create 250,000 new jobs, we aren’t even close to coming out of this recession.

Economist (and reporters) use short forms for numbers because they work with such big numbers every day. One billion becomes 1 and nine hundred million becomes 0.9 with a note at the bottom “All numbers in billions”. That works for people who deal with it all the time – almost. The problem is that the number has no gut check value. It’s far too easy to loose sight of the human impact when you don’t write out the full number.

0.025 (billion) just feels like a small number while 250,000 makes it much easier to see the real, live people who need a job. Depending on the source, that 250,000 is open to debate, but whatever the number, until we crate that number of jobs EVERY month, we are nowhere close to coming out of this recession.

Monday, August 17, 2009

I’ll believe the politicians when they recognize that the part of health care my employer pays for is part of my salary. When they demand that any cut in what the employer pays for health care is balanced by an increase in my hourly rate, so I can pay for the coverage my self.

I’ll believe when they demand insurance companies charge an individual the same amount as for an employee of the biggest companies for the same policy. The insurance company decided to put me in a group called individual instead of a group called company XYZ employee.

I’ll believe when they require insurance companies to accept my pre-existing condition exactly as they did when I started with XYZ Company. The insurance company decides to accept a pre-existing condition or not based on which group they assign me to.

Which group an insurance company assigns me to is an accounting fiction decided by that insurance company and nothing will change as long as it’s in the insurance companies interest (higher profit margin) to not change.

Remember, if the insurance company wasn’t making a profit selling that policy to XYZ company, they wouldn’t sell it. So it’s not a profit or no profit decision, it’s how much profit.

Tuesday, August 11, 2009

Kurt Andersen in Time magazine on line wrote: “as some of the huge, dominant, old-growth trees of our economic forest fall, the seedlings and saplings — that is, the people determined to produce and sell new kinds of transportation and housing and media and other merchandise in new, economically rational ways — will have a clearer field in which to grow”

One big failure of all the economists trying to formulate a government policy is really shown in this choice of metaphor. Yes, in a forest, the big trees die to make way for the next generation of big trees. The problem with his use of the metaphor in today’s economy is that it is incomplete.

The trees can represent the businesses that are constantly growing, dieing and being replaced by the next “tree”. In this metaphor there are no people. Not to push the forest image beyond reality, the people are the birds and animals that live in the forest. When the forest dies of natural causes, one tree at a time, the “critters” that live in the forest have time to adjust and only a very few loose their home or food source.

If our economy is a forest, then current conditions are a forest fire where the fire burns through the forest so fast that the critters don’t have time to escape or adjust. They just die.

In his article, Mr. Andersen talks about Aptera Motors, Fisker Automotive, Tesla Motors, and Bright Automotive as the model replacing GM and Chrysler. Kurt, how many cars will any of these new companies need to sell to get the loans for the kind of money it will take to set up an assembly line to churn out 600,000 cars a year, and remember that the average person can’t afford a $30,000 car. At the same time these new companies need to generate huge sums just to build the plant to make cars, they need to cut the selling price by half.

And if current employment trends continue, that $15,000 car price might have to shrink to $10,000 to $12,000. If the economy takes 5 years to recover, how many people living in the “Obamavilles” (remember in the great depression they called the shantytowns Hoovervilles) will be able to buy those cars?

Friday, July 31, 2009

Professor Gates of Harvard identified himself with his driver’s license and Harvard ID card. His driver’s license gave his residence address as the house he was in.

Any reasonable police officer would at that point recognize that he was dealing with the homeowner and say “Thank you, Sir. We were just making sure that you were, indeed the homeowner. Have a nice day.” Then leave.

This was not about race; it was a cop on a power trip. This officer has a real problem with authority figures.

Wait, you say, “isn’t the officer the authority figure?” Only until he finds out that the person he is talking to is not a “suspect”; he or she is a “citizen”. In the case of Professor Gates, that happened in the instant that he showed the officer his identification that he was not breaking in, that he was the homeowner.

In that moment the citizen became the authority figure and the officer the public servant.

Thursday, July 23, 2009

Over 45 years ago when I was still in school, most tests were multiple choice and essay. The teachers loved multiple choice because they could grade them very quickly while essays had to be carefully read and that took time, slowing down the grading process.

Job boards and electronic resume submission forms work more like multiple choice than essay and work really, really well with skills. Skills like; types 60 wpm, welds aluminum, or 5 years experience as a plumber. They don’t work very well with essay type answers; Increased sales by 20%, etc.

Essay type answers demand discrimination and most artificial intelligence systems available today can’t do the level of discrimination that a human reader can. That means that a real live human has to read, closely, a resume for jobs that require judgment. That includes most jobs beyond entry level.

Since these tend to be the better paying jobs, there are a lot of applicants and this means a real investment in time by the HR departments.

I’m looking into what it will take to start a local business incubator in my hometown and wrote a white paper, which I asked some contacts to read. The funding sources were buried on the next to the last page on purpose. All the people who “read” it asked where the funding would come from! This told me that they hadn’t read the whole thing, just skimmed for key words.

How does this relate to job boards?

Job boards and computerized job applications do exactly the same thing, they “skim” for key words. If your key words are different from the expert system’s (or the human reader’s) you’ll get missed. The big problem is the preconceived ideas of the person writing the expert system or key word list. If they don’t really know the keywords that span industries and job descriptions, they will arbitrarily limit their candidate pool.

While this is a problem for job seekers, it’s an even bigger problem for business. A stable expert with years of experience in logistics, for instances, is much more valuable to your business than someone with lower skills and less experience. You’d like to find someone who can hit the ground running and not take a significant amount of time to learn the job.

There is not now, and may never be, a substitute for a live human actually reading a complete resume. Companies will continue to have problems finding high quality employees until they recognize that the key place to apply resources is at the initial screening. The first person to read a resume must have a great deal of experience with a large variety of industries and a deep knowledge of the day-to-day demands of each job they are screening for.

The initial screener is grading your “raw materials” and that job demands a high degree of knowledge, skill, and plenty of time to do the job right.

Saturday, July 18, 2009

I just heard a segment on CNN news, running in the background on my TV while I write. They were talking about a business that is down because of the economy but will still expect to show double-digit growth.

Who cares how fast it grows? All businesses eventually saturate their market and show limited growth. The only measure of business health is profit. It is possible to have a stable, profitable business and not get much bigger.

True, you do have to look ahead since the market does change, your product or service may have to change, delivery methods may change, cost structures may change and you have to keep on top of all that while turning a profit.

The idea of constant growing sales comes from lazy financial monitors, mainly stock price followers, looking for a single simple measure of performance where the truth is much more complex. Those lazy people have infected the rest of the business community with their shorthand performance measure and that in turn has twisted management’s view and investor’s expectations to unrealistic levels.

I remember Apple’s stock price dropping because their profit was slightly smaller than some Wall Street analyst’s projections at the same time they returned over a billion with a B in profit. That was even up slightly over the year before, just not as much as the analyst expected (wanted?)

Unfortunately far to may companies are focused on what the stock market does and not on what their customers want and are willing to pay for. The customer buying products ultimately funds companies not stock sales.

Monday, July 6, 2009

A large part of the rational for the massive government bail out is that the companies are “too big to fail”. I, as a layman, take that phrase to mean that the particular company is so interwoven with its industry that letting it fail would hurt the entire industry. I also take it to mean that the damage to that particular industry would damage the entire economy.

The politicians listened to the industry experts and began dismantling the Glass-Steagall Act of 1933 with changes the Depository Institutions Deregulation and Monetary Control Act of 1980 and by the Gramm-Leach-Bliley Act.

Some, but by no means all, of these changes were key to the financial melt down in the US economy. A few financial experts warned against those changes which allowed the merging of banks into such big conglomerates. A lot of us laymen worried about those same changes and warned whoever would listen (not many people) that these changes were risky.

One of the big reasons sighted was to allow the aggregation of capital to finance bigger projects than the smaller institution could finance. The truth be told, it never was about figuring out how to finance the projects, it was always about those specific companies being able to finance the entire project by themselves, instead of forming a limited corporation to finance that single project.

We’ve known how to create a corporation to finance big projects for several hundred years. The problem, of course, is that the profits are shared by all the partners not retained by a single entity.

We recognized in 1933 that some financial transactions should be firewalled from other transactions. We also knew that we needed to regulate the size of any single institution to keep them from getting "too big to fail". We changed those regulations, not to make the public safer, not to make the business more efficient for the public, we change the regs to make selected institutions more profitable. Not to keep them alive, but to enhance profit.

One thing you learn in business that politicians don’t seem to learn is that if it’s not working, stop doing it!

The changes to the banking regulations that apparently helped create this firestorm need to be changed back, and as quickly as possible to the ones that gave us a stable economy for almost 60 years. We need to demand that those over-bloated banks get back to a size where no single institution can ever be “too big to fail” again.

Tuesday, June 30, 2009

Innovation in the past created jobs. Innovation drove the manufacturing of products and that meant lots of jobs in the factories.

Innovation today means one or a handful of programmers, with a creative spark, writing the next big application like Twitter or those neat tricks for the iPhone. Once that individual or small team is done – they’re done. They don’t create a host of jobs for a lot of other people.

So when the economic experts and politicians talk about “leveraging innovation” what is their plan for the people who won’t have jobs because the innovation stops when those few creators finish? What happens to the people who used to work making products when you ship the manufacture overseas to cheap labor markets?

Friday, June 26, 2009

I’ve been watching the growing mortgage crisis with awe and admiration for the consummate stupidity of the entire banking industry. If that sounds harsh, look at what they are doing.

People who were paying their mortgage on time until the adjustable rate mortgage (ARM) adjusted up now can’t pay. So rather than adjust it back, they foreclose and loose even more money by selling the house at a huge discount.

As job loss grows, homeowners who had been paying their mortgage and need a quick fix can’t get bankers to work with them. All they need is a one or two or three month mortgage holiday. So allow them to skip the payment for a month or three and add those payments on the end so it’s not a 20 or 30-year mortgage, it’s a 20 or 30-year plus the extra payments that were missed. The lender misses a very small amount of interest but they don’t have to foreclose.

How about a homeowner who gets fired and takes a lower paying job because that’s all they can find? Better to cut the interest (the biggest part of your monthly payment) and keep the loan active than allow it into foreclosure. Don’t believe me that interest is the biggest part of your payment?

If you have a $200,000 home loan for 40 years at 7% your payment is 1330.60. Divide $200,000 by $1330.60 and you will pay off that house in 151 months. 30 years times 12 is 360 months and that means it will take you 209 months to pay the interest. So, the interest is $ $278,095.40 or just over doubling the cost of the house. The higher the rate (8% versus 7%) the more you pay in interest.

What does that interest get you? The use of the banks money for a long, long time and that’s a valuable thing. The point is that you’re paying more in interest than you are paying for the house so that’s the easiest place to cut. If you change the interest rate to 6% your payment is $1199.10, savings of $131 a month. Drop your rate to 5% and you save $256 - making the payment $1080 and that just might be the difference between your keeping the house or foreclosure.

There is an old saying - “When you’re in a hole, stop digging”. When the banks add late fees or demand an interest payment to “skip” a payment, they are digging the hole deeper and making it that much more likely that the loan will default!

Any banker that can’t see that taking a $1,000 loss in fees and interest is so much better than taking back a house mortgaged at $200,000 and selling it at a foreclosure auction for $125,000 shouldn’t be allowed to walk around with out adult supervision!

Making money is better than loosing money, but when the choice is between loosing $75,000 and loosing $25,000, which would you pick? And, are you sure that you want to trust your savings account to a banker that thinks foreclosure and a big loss is better than a small loss to work out a way for the bank’s customer to keep paying?

Tuesday, June 23, 2009

Insanity is doing the same thing the same way and expecting different results. Benjamin Franklin.

A couple of weeks ago I dropped by the state unemployment office to get help finding a job. I talked to the veteran’s assistance specialist, who recycled the same advice I’ve gotten before and which hasn’t worked.

What shocked me is that his recommendations to rewrite my resume were diametrically opposed to the recommendations the specialist at the other state unemployment office gave me. His suggestions would take my resume BACK to its original form.

He also observed that my resume was filled with the references to management and that I should be careful not to “manage yourself out of a job”.

Friday, June 19, 2009

Gas prices are on the rise again. The reporter for CNN money is claiming that a large part of the increase is caused by investors, who expect the dollar to be worth less because of borrowing to finance the “stimulus”.

So the answer is speculators.

Now we all know that speculators are not evil people, and in fact add a great deal of value to the economic system. When speculators buy futures, they make cash available today to people who won’t sell their products until next week, next month, or next year. Since the speculator doesn’t have the use of their money until the product sells, they should get some payment for the time their money is not available.

When you put money in the bank, the bank pays you interest for the use of your money. The longer the money is locked up the higher your return. A 6-month CD pays more than passbook savings because you can pull the passbook savings right now. The oil and gas speculators may not get their money for long periods of time, so the percentage of return is that much higher.

Is the speculator still adding value when their “fees” for the use of their money today become a significant part of the final cost tomorrow?

One problem is that a small number of players dominate the oil and gas markets and the cost of entry is huge.

This is not a monopoly in the usual sense. These people are, probably, not agreeing on a single price. It’s just a small number of people making independent decisions in a market where their self-interest leads them in the same direction.

The big problem with oil and gas is that a small number of players control a necessary resource and have an inordinate impact on prices. Oil and gas products are seasonal. We use more of certain products depending on what month it is and less of others. When the seasons change, the product mix changes as well. This also means that there may be excess of some products at some times. If a small number of speculators can control that excess they can move the price of the entire market up or down, usually up, by their actions.

At what point should they be more closely regulated and at what point does their negative impact on the consumer outweigh their value to the system as a whole?

Sunday, June 14, 2009

Washington is wrestling with health care costs yet again. The politicians have failed to get a consensus on how to cut or even hold down the shocking increases in costs we’ve seen with each successive administration for at least the last 20 years.

The best way to solve any problem is to look for and fix the simplest elements first. Not only do you gain momentum, but you also remove clutter and reduce the complexity of the problem.

One simple thing to fix in health care is multilevel pricing that forces people to pay higher prices for the same coverage as an individual than as an employee. The insurance company costs are exactly the same for an individual buying an independent policy as for that same person when insured as a worker for small three-person office or in a large national company.

The idea that the insurance company can spread the costs for that individual over a larger pool of insured is true only if you can forget that the number of people in the pool is an arbitrary fiction of the insurance companies’ accounting department.

Remember that the insurance company decided to put you into their internal accounting group labeled XYZ Company and not one labeled Joe Smith.

The second question is why, when I start a new job, the insurance company can accept my preexisting conditions but either cannot accept me as an insured because of those conditions as an individual or have to charge me a much higher rate?

Again the cost difference is an accounting fiction caused by which internal accounting group the insurance company assigns me to.

Nationalized health care would put ALL insured in a single pool with the same rules and prices spreading the cost across a large enough group to even out. Of course the private insurance companies could do the same thing right now and make a lot more money by insuring a lot more people.

Monday, June 8, 2009

The latest word game is the use of “laid off” for fired. Traditionally you are laid off only when the company really intends to bring you back to work in a few weeks.

During the annual model changeover shut downs at the automakers, the workers are laid off for a couple of weeks while the factories are retooled for the next year’s models. The company and the workers both understand that all the workers will be called back once the changeover is completed.

Does anyone really expect the workers now loosing their jobs will be rehired within a few months? Six months? Next year? If recalling those workers is not part of your business plan, they are not laid off - they’re fired!

It’s not just the intellectual honesty of calling it by its right name, it’s just as Dr. Phil McGraw said, “You can't change what you don't acknowledge”. If you use the wrong labels, you acknowledge the wrong things, then you and the people around you waste time trying to fix the things you labeled, not what’s really wrong.

Wednesday, June 3, 2009

I was just watching a commercial from Home Depot, and as many companies are these days, they are advertising lower prices. Seems like a good deal all around - the customers get cheaper products and the companies sell more “stuff”.

The problem is that you’re training your customers to believe that the sale price is the “real” price and the discount was your excess profit! You also train them to believe that any increase goes directly into your pocket as profit.

The automakers fell into this trap with discounts and sales. Customers began to expect that sale price all the time. The other result was that customers who might have bought in May bought in February to take advantage of the savings. So while sales were up in February they were down in May. Why? Cause those folks who would have bought in May already bought in February!

Now, you might lower the price on one item or even on several selected items to get people into your store. Supermarkets have used “loss leaders” for years. Selling one item, sometimes lower than their real cost, just to get you into the store in the hope that you will buy the rest of your groceries while your there. Again, while it gets the customer in to the store, it also teaches the customer that the “real” price of your house brand peanut butter is 89 cents not $1.45 as marked.

Saturday, May 30, 2009

In January we lost just over a half a million jobs (598,000 non-farm jobs). If Chrysler closes, we loose 55,000 direct jobs and an unknown number of secondary jobs. Secondary jobs are suppliers to Chrysler and places that sell things like food and clothing to Chrysler employees. When we loose almost 600,000 jobs in one month, 55,000 doesn’t sound so bad until you put that number in to a human perspective.

The number of employees directly impacted by a possible Chrysler shut down is greater than the entire population of the town I live in. Imagine every business in my entire town closing the doors!

One of the most important skills a senior manager needs is to be able to switch back and forth between macro and micro thinking. That is, looking at the “big picture” and the individual details. Knowing the size of your market but still being able to understand the needs of individual end users.

I believe that part of the reason our economy is in such disarray is the planner’s lack of ability to deal with big numbers and still see the individual costs. By focusing only on the macro, the big picture, they missed a lot of leading indicators embedded in the micro. Problems for a single individual in one place, a single company in another, or a single industry in yet another city, didn’t crack their macro view. Once the leading indicators got large enough to get their attention it was too late to for them to stop the downward spiral.

It’s time to find the “contrarians”, the people who tried to call your attention to the dangers of your current plan. Those folks who said, those trade agreements are not a good idea, the economists who warned their banks that they were taking on too much sub-prime mortgage risk, the investment experts that warned against buying too heavily into derivatives.

Those people saw the problem long before anyone else and since events have proven them right they are the most likely to spot a solution first. Besides, they’ve been thinking about the problems, as problems, longer than anyone else. Everyone else was too busy saying, “there is no problem - the economy is fundamentally sound”!

Sunday, May 24, 2009

Back in the 1950s there was a TV entertainer named George Goble (see this Wikiapedia link). During an interview he was asked if he served in World War II and he answered yes I was pilot. The audience applauded.

When asked what he flew, he replied, C-47s and the audience applauded again. When asked where he was stationed, he replied, Omaha, and the audience laughed. He gave his trademark long pause and stared at the audience, then replied, “That’s where they sent me”.

Some served in combat, some as clerks, some in the reserves but all veterans have this in common, they served where their branch of the military sent them.

As a Viet Nam veteran, I have a common bond with all veterans; we put our name in the hat and took the luck of the draw. Each of us was willing to put aside our own lives for some period of time to support and protect our country. However dramatic or humble the service, that willingness is what I believe we honor on each Memorial Day.

In an unbroken tradition that stretches from the Revolutionary War to Iraq the women and men of our armed services have put themselves at greater or lesser risk for their extended family – the United States of America!

Tuesday, May 19, 2009

The worst thing you can do in a meeting is make your employees think you are holding them responsible for things beyond their control.

When you talk to your employees about “owning” a process you must remember that they can only own it if they have the authority to drive and control the process. You cannot be responsible for something you don’t have control over.

Your employees can only think to their level of influence. If you have a mixed level of managers and workers in the same meeting, make sure that each knows which parts of the briefing apply to their level.

They need to know the high level goals of the company, business unit, and department but only in general. They only need to know the details of the part they can influence because they will not be responsible for anything beyond their control.

Friday, May 15, 2009

This Time article in their online version discusses the importance of paying the Citibank traders their bonuses.

The well-reasoned and thoughtful article is based on the premise that since they make huge amounts of money for Citibank, keeping them is in the bank’s best interest. If they left, not only would Citibank loose the profits, but since these men and women are so good, business would naturally leave Citibank and follow them to their new firms.

Horse pucky!

If these guys are the best and brightest, why did they recommend buying stocks and derivatives at prices that “The Market” over valued.

Don't think they were over valued? Ask the market that crashed to burst the bubble. If we accept that the current economic situation is a market correction for improperly priced financial products, then the people who must carry the largest responsibility are the people who advised buying at that price. If they were that wrong then, why should we want to keep them?

If your business judgment was that bad, would your boss want to keep you much less pay you a bonus?

I am constantly flabbergasted by the policy makers and pundits who have a totally different set of performance standards for the CEO of a major company than for the slob that fixes their plugged up commode.

Wednesday, May 13, 2009

One problem with the government’s response to the “global economic crisis” is their focus on the word “global”.

In an episode of the TV show West Wing, one of the characters asked the president “Why is an American solder’s life worth more than a ...” and inserted the name of the fictional country they were talking about. By the end of the episode the president answered, “It’s not”.

While that may appeal to our sense of honor, it misses the point. The President of the United States was not elected to preserve and protect the lives of whatever country is under discussion, he was elected to preserve and protect the lives of Americans!

We did not elect our President, our Senators, or our Representatives to support the global economy. We did elect them to take care of the citizens of the United States of America. Events have shown that they worried so much about the impact of their decisions on “global” markets that the forgot the impact on their own citizens.

We've bled jobs to foreign countries for years because of trade agreements that made it cost effective for businesses to shift work away from the United States. Yes, we got cheaper products, but lost jobs so much faster than we created new ones that we destroyed our biggest customer base.

If your friends and neighbors don't have jobs, they can't buy your stuff!

Monday, May 11, 2009

If you wouldn’t accept the answer yourself, don’t try to sell it to someone else. (Least of all a subordinate!)

Flying from the east coast back to Seattle, we were told the flight had been moved from to a different gate. A real inconvenience when the gates are in different terminals at Dallas-Fort Worth airport. On arriving at the gate we were told that the plane was going to be 2 hours late.

I could have accepted the delay except for the aircraft loading at the gate for Sacramento with a departure time of 5 minutes before my scheduled flight to Seattle. Airlines don’t plan for two aircraft scheduled to depart with in 5 minutes of each other to occupy the same gate. Obviously someone knew that the Seattle flight would not be filling that gate at that time far enough in advance to schedule the Sacramento flight to load there.

The change in plans is a so what, travel can be like that. The insulting part was to get an answer that was obviously not true! The truth was obviously that we should have been told - Your flight is delayed 2 hours. It is now scheduled for 5PM at gate 16.

How would you feel if your boss gave you an answer that you would not accept from a subordinate? Worse yet, how do you feel about yourself if you give a subordinate an answer you wouldn't accept from them?

The single test for the answer you are about to give is “Would you be satisfied with the same answer from a subordinate or supervisor” if the answer is anything less than an unequivocal yes, DON’T SAY IT!

Tuesday, May 5, 2009

Why are American workers so upset with all the job loss? Not because it’s hard to pay their bills, not because they may loose their homes, not because they can’t afford to see a doctor – it’s because they are expected to pay ALL the costs of the economic down turn!

Most of us had little control over what the companies we worked for did. They built too much capacity without asking us what we thought of that decision. They made loans (that turned out to be questionable at best) with out asking us if it was a good deal. They supported legislation that made it cost effective to ship our jobs “off shore” and never gave us a chance to argue against that practice.

Then when those choices turn out to be very bad choices, we pay for the mistakes!

When those decision makers get fired they still get bonuses that are larger than most of is will make in a lifetime. Bonuses for making choices that cost us our jobs and damaged many American businesses to the point they are facing bankruptcy.

The vast majority of workers did their work with a commitment to making the best products and giving the best service, now decisions outside their control have left far too many without their old jobs and no place to find a new one. This, while the decision makers are getting paid well enough to retire at a much richer lifestyle than those average workers will attain IF they can find a new job.

A big part of the problem is that American managers have created an adversarial system between managers and workers. They did this by not understanding that without someone putting boxes on truck, the product never gets to the customer. Yes, yes, I know – freight dockworkers are easy to replace since a lot of people can do the work and training costs are low.

It all comes back to the decision makers’ confusion about value versus cost. Just because something is cheap, doesn’t mean it’s not valuable. One of the cheapest parts on your car is a 12-cent cotter pin that holds the steering linkage together. But how valuable is keeping your car's steering linkage from failing?

Saturday, April 25, 2009

New ideas are by definition different from what went before if they weren’t, they’d be old ideas. Statistics are a snapshot of history thus only report on old ideas. The more you concentrate on what happened last week the less you think about what comes next.

Statistics may help you see what did or didn’t work well in the past, but they do not show you what will come next, for that you have to forget statistics and think outside the limits of how you did it when you took that snapshot. Everyone is familiar with the phrase “Think out side the box”, the statistical snapshot of the past is part of the limits of the box.

Albert Einstein said “The significant problems we face cannot be solved at the same level of thinking we were at when we created them”. Which is essentially the same as my much more informal statement, and if one of the most creative thinkers in history recognized that the past is a prison to new ideas you should at least consider that you need to stop looking at those spreadsheets and charts of last year and last week.

To prepare for the future, you have to put the past out of your mind, put your feet up on the on the desk, stop answering your phone, and think about what may come next and how to turn it to your advantage.

Wednesday, April 22, 2009

She is a singer on the TV show “Britains Got Talent 2009” who’s voice just blew the judges out of the water.

So what! So, she absolutely doesn’t look the part. If you watch the video link above, you can see the judges and the audience’s reaction to her appearance and accent when she walks out on stage.

Then she sang. She sang and the world changed! You suddenly see her as a professional singer with the wardrobe, makeup, and hairstyling all perfect. This should be more than an interesting cultural note, it should be a wake up call to how you find and hire talent for your business.

Susan boyle’s resume was her appearance and accent and the audience and judges discounted her on that initial look. When she sang, she demonstrated her capabilities and they are magnificent.

The TV show American Idol is entertainment and the failures are almost as entertaining as the successes. Without a venue like Britians Got Tallent, Susan might never have gotten past the initial “she really doesn’t look like my preconceived idea of what a singer should look and talk like”. What a talent the world would have missed.

Is your system so narrow and your preconceptions so strong you are missing great talent for your business? Before you start claiming you don’t have time to talk to everyone, think about the following:

A backhoe without an operator is a lawn ornament while a worker with a shovel will still get work done. Maybe not as much or as quickly, but the worker is the key, not the equipment.

If presentation skills are not part of the job you are filling, then presentation doesn’t matter. The number of workers who have focused task skills AND presentation skills is much smaller than those with just task skills. Every time you hire based on how good the resume looks and how well they interview, you risk hiring a skilled presenter and not a skilled worker.

We all knew people in school who tested well but had no clue what the class was about or how to apply the lessons. Is your HR process screening for great singers or people who just look and talk like great singers? Unlike a TV talent show, you have to hire the worker to “hear them sing”. Make sure your process is getting the workers you need and not just the ones that are easy for HR to pick.

Monday, April 20, 2009

In the military they talk about “tooth-to-tail”, referring to the ratio of supply clerks (tail) to fighters (tooth). Keeping the tail as small as necessary to support any given number of teath is an ongoing leadership effort at all levels for military commanders.

One of the big contributors to the current economic crisis is the tooth-to-tail ratio of the biggest American business. Too many administrators and managers to too few workers. Workers in this usage is defined as people who actually design, build, sell, or deliver a product or service to the customer. Now, there are essential support functions. Someone does have to to do payroll, clean the restrooms, and so on.

But too many managers and administrators getting too large a salary and bonus at the top is the first place to cut. The guys and gals on the shop floor should be the last.

To push the military tooth-to-tail analogy just a little further, without the logistics tail to supply the fighters teeth, you have an inefficient army, but inefficient armies have won wars. A superb logistics system with no fighters has never won a war

In the same way, the people who actually build the product or deliver the service to your customer are the key to your profits. All the rest of the functions are support and deal with the efficiency of your process, not if it delivers your product or service at all.

Thursday, April 16, 2009

Back when the railroads were first building their network of rails, many startups failed, were bought up at bankruptcy prices, and then went on to financial success once the debt was washed away. We saw the same thing with some of the long distances fiber-optic cable companies. They borrowed huge sums of money to build their infrastructure and couldn’t earn enough to pay back the loans, individual assets were bought by other companies at bankruptcy prices, and then used by the new owners to make a lot of money.

In the current economy the push seems to be to wash many companies debt to retired employees away by reneging on their pensions and health benefits. Allowing the retirees to “fail” will help the companies to stay afloat and to generate a profit in place of their current losses. The “new” profit comes directly from the money not being repaid to the original investors or in this case the people who already worked for the retirement payments and health benefits.

Do the beneficiaries of those bankruptcies have an ethical obligation to the people who lost their investment (in form of hours worked or in the cash used to buy stocks) in the original company? If those investors and employees had not fronted the hours or money the asset would not have been created, and these future profits never realized.

Monday, April 13, 2009

I just saw yet another article recommending that people use the current economic crisis as a time to reevaluate their life and, for those who loose their jobs to ask “What would your life look like if money was not an issue?”. The suggestion is that since you’re out of work anyway, try to turn the lemon into lemonade. Always a good idea, but what do you do if the answer is “My life would look exactly like it did before I lost my job!”

Simply telling workers to use the forced time off for self examination and to find a new direction is useless. Real advice would give them some way to evaluate their personal capabilities and interests, advice on matching their personal capabilities and interests with a new career field, directions on how to learn new skills and how to pay for the classes and living expenses while taking the classes, and instructions on how to connect with an employer to put those new skills to work.

Don’t bother claiming that it’s the individuals job to figure out the answer to those questions, you’re the one who decided to set yourself up as the “expert” by giving advice in the first place. Unless and until you can answer those questions, your not only not helping, you are diverting attention from the real problems and solutions.

Wednesday, April 8, 2009

This has be an article of faith to almost all economist for my entire lifetime. Calling it into question is treated by both economists and politicians as heresy and the people who question this particular “faith” are treated as economically challenged.

Well lets look at the results of this particular idea.

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced on Friday, March 13, 2009 that total January exports of $124.9 billion and imports of $160.9 billion resulted in a goods and services deficit of $36.0 billion. That means we bought 36 billion dollars from foreign companies than we sold.

Somehow these practices didn’t create more customers for US businesses it created more customers for the foreign companies. And in creating those customers, Americans lost their jobs.

According to the US government Bureau of Labor Statistics web site as of March 2009 the total unemployment was 8.5%. With 301,000,000 people in the US, that’s 2,558,500 people.

In addition to spending that $39 billion somewhere else, we gave up a huge amount of money in salaries for people who lost their jobs.

Lets suppose that each person earns a salary of $25,000 per year. That means the nation as a whole is loosing $63,962,500,000,000.00 each year they are not working.

The entire trade deficit as of January 2009 was $36,000,000,000.

If we subsidized US companies by the amount of the deficit ($36,000,000,000.00) we could put at least half the unemployed back to work. I say at least half, because those people would be buying things and paying taxes and that would spark the economy to hire even more people.

The biggest problem with the proposed solutions is that the “usual suspects” who advised us to make the trade policies and business regulations that got us here are the people being asked for the solution! Let me make sure I understand - the people who recommended policies that failed are now being touted as the experts who can solve the problem.

If your mechanic hosed up your car, would you take it back to them to fix it? And why should economic advisers be treated any differently?

Friday, April 3, 2009

I was just reading an article a the CNN website titled “15 Companies That Might Not Survive 2009” by Rick Newman. Rick named Chrysler as one company that might not make it through the year.

In January we lost just over a half a million jobs (598,000 non-farm jobs). According to the 2005 annual report from Diamler Chrysler, Chrysler had 84,100 employees. If Chrysler were to go the way of American Motors or Studebaker all of those workers will be on the street. When we loose almost 600,000 jobs in one month, 84,100 doesn’t sound so bad until you put that number in to a human perspective.

The number of employees directly impacted by Chrysler going out of business is twice the number of the entire population of the town I live in. Imagine every business in the entire town closing their doors! Then imaging it happening twice in a single location.

One of the most important skills a senior manager needs is to be able to switch back and forth between macro and micro thinking. That is looking at the “big picture” and the individual details. Knowing the size of your market but still being able to understand the needs of individual end users.

I believe that part of the reason our economy is in such disarray is the planner’s lack of ability to deal with big numbers and still see the individual costs. By focusing only on the macro, the big picture, they missed a lot of leading indicators embedded in the micro. Problems for a single individual in one place, a single company in another, or a single industry in yet another, didn’t crack their macro view. Once the leading indicators got large enough to get their attention it was too late to for anyone to stop the downward spiral.

It’s time to find the “contrarians”, the people who tried to call your attention to the dangers of your current plan. Those folks who said “those trade agreements are not a good idea”. The economists who warned their banks that they were taking on too much sub-prime mortgage risk. The investment experts that warned against buying too heavily into derivatives.

Those people saw the problem long before anyone else events have since proved right are the most likely to spot a solution, particularly since they’ve been thinking about the problems as problems longer than anyone else. Everyone else was too busy saying “there is no problem” and “the economy is fundamentally sound”!

Sunday, March 29, 2009

Journalist Ruben Navarrette Jr. In a article on the CNN website wrote about talking to a Las Vegas Nevada construction worker who was complaining about illegal workers driving down wages. Mr. Navarrette opined “And of course, he never thought to look in the mirror and blame himself for not taking steps to improve his skills in the last 20 years. Maybe he could have gone into a different line of work long ago. He decided not to. I suppose illegal immigrants were to blame for that, too.”

I for one am sick and tired of the top 28% of the country blaming the bottom 72% for not being as smart as the top 28%.

Say what?

According to the US Census bureau 28% of the US population has a college degree and if you believe the college entrance exams, they are the “smartest” of each year’s high school graduating classes. So now a construction worker who didn’t get a degree is being blamed for not being born as smart as the author. When I googled his name I found out that Mr. Navarrette has two (2) degrees from Harvard. That puts him in some small percentage of that top 28%.

Now I’m sure Mr. Navarrette worked hard for his degree, but three quarters of the population can’t match his performance. If they could, we wouldn’t have entrance exams, anyone who wanted to could just sign up and attend college. The exams are used to limit who can attend college to the people that the school expects can actually do the work and learn the material. I’m sure that some percentage of people who don’t get good enough scores on the college entrance exams just goofed off and didn’t study, but the majority did the best they could and still couldn’t make the cut.

Like the construction worker who is the subject of the article, they went on and got the jobs that they could and made the best of their talents and abilities. Along comes this writer in the top 1/4 and blames the construction worker for circumstances beyond his control.

Tuesday, March 24, 2009

I’ve been watching the growing mortgage crisis with awe and admiration for the consummate stupidity of the entire banking industry. If that sounds harsh, look at what they are doing.

People who were paying their mortgage on time until the adjustable rate mortgage (ARM) adjusted up now can’t pay. So rather than adjust it back, they foreclose and loose even more money by selling the house at a huge discount.

As job loss grows, the number of home owners who had been paying their mortgage and now need a quick fix can’t get bankers to work with them. All they need is a one or two or three month mortgage holiday. So allow them to skip the payment for a month or three and add those payments on the end so it’s not a 20 or 30 year mortgage, it’s a 20 or 30 year plus the extra one, two, or three month’s payments that were missed. The lender misses a very small amount of interest but they don’t have to foreclose.

How about a home owner who gets fired and takes a lower paying job because that’s all they can find? Better to cut the interest (the biggest part of your monthly payment) and keep the loan active than allow it into foreclosure.

There is an old saying - “When you are in a hole, stop digging”.

When the banks add late fees and demand an interest payment to “skip” a payment, they are digging the hole deeper and making it that much more likely that the loan will default!

Any banker that can’t see taking a $1,000 paper loss in fees or interest is so much better than taking back a house mortgaged at $250,000 and selling it at a foreclosure auction for $150,000 is a bad idea shouldn’t be allowed to walk around with out adult supervision.

Making money is better than loosing money, but when the choice is between loosing $100,000 at a foreclosure sale and loosing $1,000 in lost interest payments which would you pick?

And, are you sure that you want to trust your savings account to a banker that thinks foreclosure is better than a small loss to work out a way for the owner to keep paying?

Saturday, March 21, 2009

The latest word game is the use of “laid off” for fired. Traditionally you are considered laid off only when the company really intends to bring you back when business picks up. During the annual model change over shut downs at the automakers, the workers are laid off for a couple of weeks while the factories are retooled for the next year’s models. The company and the workers both understand that the workers will be back at work once the change over is completed.

Does anyone really expect the workers now loosing their jobs to be rehired within a few weeks" A month? Six months? Next year?

If recalling those workers is not part of your business plan when you let them go, their not laid off, they’re fired! At least have the honesty and integrity to tell the truth and not play word games.

Monday, March 16, 2009

One problem with the United States government’s response to the “global economic crisis” is their focus on the word “global”.

In an episode of the TV show West Wing, one of the characters asked the president “Why is an American solder’s life worth more than a ...” and inserted the name of the fictional country they were talking about. By the end of the episode the president answered, “It’s not”.

While that may appeal to our sense of honor, it misses the point. The President of the United States was not elected to preserve and protect the lives of what ever country is under discussion, he was elected to preserve and protect the lives of Americans!

We did not elect our President, our Senators, or our Representatives to support the global economy. We did elect them to take care of the citizens of the United States of America.

Events have proven that they worried so much about the impact of their decisions on “global” markets that the forgot the impact of their decisions on their own citizens.

Tuesday, March 3, 2009

The US congress is talking about limiting compensation for Wall Street managers. By all reports the financial community thinks this is a bad idea and will be counter productive since the managers get large bonuses for creating profit.

A great idea if they actually had created big profits!

Unfortunately those big profits that drove big bonuses were illusory. We know they were illusory because the companies that paid those bonuses for generating those big profits are the very companies with their hands out to the government. If they really had made big profits, they wouldn’t be begging for government bailouts.

The real problem is that the companies linked compensation to SHORT TERM results and this led to only looking at how big the sale was without regard to the long term quality of that sale.

If you want to share in the rewards for good times, simple honesty demands that you be equally willing to share in the costs of the bad times. Maybe the better way to structure bonuses would be like the commission on insurance policies. You get an upfront commission for the sale but the rest is paid as a residual for as long as the policy payments are continued.

Managers would get their bonus with some percentage up front and the bulk in relationship to each successive year’s profitability, so that if you make short sighted decisions you’re residual income is directly impacted. While the details might take some time to work out, it would force the decision makers consider both the short term gain and the long term cost.

Severance pay for top executives should be the same as anyone else in the company. If the janitor gets 2 weeks severance pay for every year they worked for the company, why shouldn’t the president? The senior executive of a bank might get $1,000,000 a year while the janitor might make $20,000 so if each worked for the company for 5 years the janitor gets $20,000 divided by 52 equals $385 times 5 or $1,923 severance pay. The senior executive gets $1,000,000 divided by 52 equals $19,230 times 5 or $496,153.

Before you bring up the argument that the senior executive is more valuable to the company and harder to replace than the janitor, remember that severance pay has nothing to do with relative value. Severance pay is supposed to be compensation for good and faithful service and both employees gave good and faithful service or they would have been fired for cause and be ineligible for severance pay.

Thursday, February 26, 2009

1: obsolete: experienced2: having, involving, or displaying special skill or knowledge derived from training or experience

I think the biggest part of our problems are caused by the first definition being judged as obsolete. To me the expert is the person who has a history of being right more often than wrong. Not about how many books you read, or how many you’ve written. It’s how many times you actually did it and did it right! Sometimes it’s not the number of times you were right or wrong, it’s how big an issue you were right or wrong about.

Well, the experts who told us that making the current crop of foreign trade deals was a good thing, were hugely, spectacularly wrong! To the tune of 600 BILLION dollars a year. We are bleeding jobs an alarming rate and we are creating new ones so slowly they are functionally invisible.

I submit that it’s because those experts really didn’t know what they were talking about.

They created some gorgeous theories, conferred each other with expert status, and now that their theories have failed to deliver in the real world, those same experts are clamoring to sell us their latest theory.

I think “the experts” were wrong enough to cost them their expert status. I think they were wrong enough to cause us to start looking for that non-expert who was screaming “Your wrong!” when those deals were proposes and ask him what to do. Since he was right the last time, I have a lot more confidence that he’ll be right again.

Friday, February 13, 2009

Is it protectionist, xenophobic, or nationalistic for me want to do business with my next door neighbor? Especially when he spends his money at the local McDonald’s and the local Mickey D’s spends their money with me!

The real question about our foreign trade policies is “How’s that working out for you?”

We spend a lot more money with other countries than they spend with us. The plan was that we would buy low tech from them and they would buy high tech from us. Well it didn’t work out that way, in 2008 we spend 249 plus billion dollars (yes, thats BILLION) more than we sold.

And it’s been like that since we signed those trade agreements. OK, you big brains sold us this plan, now we expect you to tell us when do we start:

Saturday, February 7, 2009

A friend of mine was bewailing the high pension costs at the US automakers as the one big causes of Detroit’s problems. I emailed this back to him.

You surprise me! You of all people (as an MBA) should understand that the retirement plans for the people who are now retired were paid for by cars sold in the years they were working. The burdened rate for the worker included their future pension costs. So each time that worker touched a component or car, some part of the cost of their retirement was added to the sale price. The auto manufactures have already collect the money to pay the pensions! That’s for both current and future retirees.

I think it was in the mid or late 80s that the auto manufacturers lobbied congress to allow them to tap the huge cash reserves they had set aside for pensions, and permit them to pay the future pensions from future revenues. Now they’ve spent the pension reserves, are crying poor, and blaming the pension costs and not themselves for wasting the reserves.

Toyota was able to negotiate lower wages because there were no other competitive wage jobs in Tennessee and there was a lot of competition for workers in Detroit. At least there was a lot of competition for workers when the contracts were signed.

The problem lies with Detroit demanding a 6.1% profit instead of 6% or whatever the real percentages are. That pressure for a tenth of one percent drove short sighted decisions that prevented innovation and quality improvements. For instance, according to the manufacturer’s web sites, the entry level Honda has a 110 cubic inch displacement (CID) engine producing over 145 HP, Chevy has a 350 CID engine producing 275 HP. Using the Honda as the gauge, the 350 should be producing over 460 HP. Even if it doesn't scale precisely, the Chevy should be producing a lot more power per cubic inch than it is. Why not? Because Detroit didn't invest in quality improvements, they spent their money trying to fight the CAFE standards and avoiding new technology because it would eat the 1/10 of one percent profit!

Picture if you will an empty cubicle with a turned off computer - no work done. Then picture the same cubicle with a worker - work done. Sorry to burst some accountant’s bubble, the important part of the plant is not the physical fixtures, it's the person doing the work. Even if we accept that the workers have negotiated excessive salaries, it still doesn't answer why the big three are in trouble when they have cars at the same price point as Toyota, Nissan, and Honda.

Detroit cars aren't selling.

Not because of price, it's the design and quality of the product. Most of the low to mid price cars from Detroit are butt ugly and not very interesting. The US automakers could just as easily built cars that look and work as well as their competition's for very close to the same price. But they would have had to invest some of their profits back into the company and then the stock price would have fallen by that magic one tenth of one percent.

Tuesday, February 3, 2009

Back in February of 2008 I told people that “we are in a recession” and was told No Way!

This article in the San Francisco Chronicle puts the lie to that “No Way”; “It took seven economists 11 months to decide what should seem obvious given all the foreclosures, bank failures and layoffs - the United States is officially mired in a recession.”

I told people that the big problem with the economy is that wages had not kept up with prices, so people used credit cards and borrowed to keep up and was told No Way!

At the beginning of the American Recovery and Reinvestment Bill of 2009, the authors write: "Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefiting from record high worker productivity, the remaining 90% of Americans were struggling to sustain their standard of living. They sustained it by borrowing ... and borrowing ... and borrowing, and when they couldn't borrow anymore, the bottom fell out." Puts the lie to that “No Way”.

I also claimed that “free trade” would be a net loss to the American worker and was told No Way!

Well now...

The US census bureau figures reports that in 2008 the US bought $246,453,000 more in goods and services from China than we sold to them.

The same source also reports on their website that “The Nation's international deficit in goods and services decreased to $40.4 billion in November from $56.7 billion (revised) in October, as imports decreased more than exports.”

Once again, I seem to be right.

My question is - how many times do I have to be right before people start to listen? The folks who told me No Way have been proven wrong which should call their theories and their ability to forecast trends into question, but those same people are the ones being asked to help solve the crisis their forecasts and theories caused.

By the way, for those of you who think NAFTA was such a good deal;

2008 we spent over 60 million dollars more in Mexico than we sold.2007 we spent over 70 million dollars more in Mexico than we sold.2006 we spent over 60 million dollars more in Mexico than we sold.

Sound like I was right about that being another looser, huh?

As my wife pointed out there were some public figures that said the same things at about the same time I said them. So why are the decision makers still listening to the “experts” that told us “No Way” and not to the people who told them that those policies would be a disaster? Seems to me that you would listen to the guy who turned out to be right not the one who was wrong!

Monday, January 26, 2009

I’m just watching your interview on Face the Nation (Sunday, January 25, 2009) and when the question was asked “Aren’t things worse that you thought?” you replied “Things are worse than anyone thought!”

Mr. Vice, I beg to differ. The working people who have been watching the job market collapse have known things were bad for years before it got bad enough hit the people you are listing to. Michigan was the canary in the coal mine and our leaders ignored it. My industry, technical writing, has been bleeding jobs for 10 years and no one paid attention. The textile industry in the southeast was decimated and that too was ignored.

The real problem is that as long as things are good in New York, L.A., Atlanta, and Washington (DC) the politicians and media talking heads can ignore anything. You’d be better served to have a policy board of plumbers, electricians and small business owners to help you understand what is happening the the rest of the country.

According to Time magazine's business section on line (http://www.time.com/time/business/article/0,8599,1873234,00.html?xid=rss-business) the American Recovery and Reinvestment Bill of 2009 addresses the government’s planning failures.

At the beginning of the bill, the authors write: "Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefiting from record high worker productivity, the remaining 90% of Americans were struggling to sustain their standard of living. They sustained it by borrowing ... and borrowing ... and borrowing, and when they couldn't borrow anymore, the bottom fell out."

If we are expected to trust this bill, we must accept this part of their analysis. Something that any person working in a factory, as an auto mechanic, or like me - writing technical manuals already knew and tried to tell you and all our representatives. You listened to the “experts” and that’s good, the problem is that you should have ALSO listened to us. You need to bring in a different set of ordinary people both working and out-of-work on a regular basis to include their representative problems in your calculations. And how about weighting your sources toward the practical (those regular folks) and not the theoretical (those experts again)?

Thursday, January 15, 2009

As I write this, the cable TV show Car Crazy is on in the background and listening to them talk about how much they like the look of old cars got my attention. One of the people being interviewed made an interesting statement - “It doesn’t matter if your a ‘car guy’ or not, almost everyone who sees a well restored old car goes Wow!”.

And it started me thinking, back in the day cars were very different between manufactures. Fords looked different from Chevy or Chrysler. Within manufacturer’s product lines, cars looked different. Chevy looked different from Pontiac, Fords from Mercury and so on.

Look at the cars the people love/hate and they each have a distinctive character. The Smart car fits a particular owner. Nobody (at least nobody in their right mind) buys one to drive from Phoenix to LA! They buy one to run around town, where small size, maneuverability and low gas milage are much more important.

I’ve been complaining for years that Detroit is not building interesting cars that “just folks” can afford. Yes the Chrysler Crossfire and the Chevrolet Corvette are cool, but out of the price range for most of us. The 57 Chevy or Ford looked cool and were affordable for most people. You could also seat 6 adults in the thing.

Most of the econo-boxes look the same except for minor details. They also only seat two in the front, and two kids in the back or two very cramped adults. You can’t convince me that Detroit, if they’re as smart as they claim, can’t build a six seater with individuality that meets the safety, emission, and gas regulations for the same price as the stuff they’re putting out now.

Yes, they may have to settle for one or two percent less profit. Right now the choice seems to be between slightly lower profit and being out of business!

Friday, January 9, 2009

In listening to the talking heads sprout about the current “recession” I keep hearing references to past economic downturns. It seems that no one wants to understand that this recession is different in scale and kind from all others.

First, the book title “The World is Flat” wasn’t just a book title. It truly described how connected our world is and how different it is from what went before. Second, in all previous recessions the jobs came back, this time they won’t!

Big talk for a small personal blog ain’t it?

This recession is different in scale because of the connectivity of global finance. Because the slow sale of toys in New Jersey causes a factory in China to stop production. In all the other recessions a down turn in one country only had a marginal effect in another. This time it’s true, if the United States catches cold, a country half way around the world will sneeze.

Jobs that are lost to this recession will be in finance, manufacturing, and industries that support them. Business in India, Thailand, China and other countries now have the capacity to compete directly with business in the US and at lower wage scales. Part of this recovery will be shifting work to those cheaper locations with the corresponding loss of income in the US.

We must figure out how to support our out of work while we fit them for the new jobs that we still have to figure out how to create. Pretending that workers who invested in educating themselves for the jobs they just lost can predict what they need to do to find a new job when the economic experts can’t answer the same questions just plain dumb.

The people loosing their jobs did the best they could with the advice our teachers, our media, and our government gave then I think all those advisers have an obligation to do their homework and tell those out of work people what new direction they should follow. And if you think it’s not the government’s business, it was the government that was bragging only a few short years ago that allowing those jobs to migrate “off shore” was a good thing and would create jobs.

Now it’s time for the government to show the workers where those jobs are!

Sunday, January 4, 2009

I found this article on CNN.com about the expected closing of a lot of big retail stores due to the economy.

Two things struck me.

First that as these big stores close they open the way for the small retailers to fill the gap. Second their suggestion that we will by less may also mean that we will spread our buying over time. Instead of a big slug of back to school buying in August, the same money may be spread out over the school year. Back in the day, my parents used to buy a years worth of shirts and slacks for me to wear to school, enough notebooks and pens and pencils, etc. for the whole year.

I suspect that instead of retailers facing those boom-bust cycles, the buying will now be spread more evenly throughout the school year. I also suspect that a lot more people will buy on line, not for any cost savings (my experience is that the shipping costs eat up most of the perceived savings) but because they can get the shirt in blue with stripes that the local store isn’t carrying due to “down sizing”.